CORPORATE CREDIT UNION SITUATION: TALKING POINTS FOR CREDIT UNIONS, MEMBERS AND THE PRESS (courtesy of CUNA)

Press coverage of NCUA’s announcement Wednesday that it is providing a $1 billion capital note to U.S. Central Credit Union, with the aim of guaranteeing all shares at all corporate credit unions through February of this year, has been extensive. Among those reporting the story have been NBC’s “Today” Show, the Associated Press, Reuters news service, The Wall Street Journal, The Washington Post and many others.

CUNA and leagues know that many credit unions have additional questions about the actions taken by NCUA. We are working on answers to a number of the most common questions. In the meantime, given the extensive press coverage, your local press and credit union members will likely have questions of their own about the status of credit unions.

Here are four key points you can make to start:

• The credit union system, overall, is healthy and sound.
• Consumers can be assured their money is safe in their credit union.
• The action taken by the federal government has no impact on the ability of credit unions to continue serving their members – they can and will continue lending, offering a safe place for their members’ savings and the scores of additional services credit unions offer to their members at no or low-cost.
• The action involves no taxpayer dollars.

When asked for additional details, consider the following to help form your responses:

The credit union system overall is healthy and sound; consumers’ money is safe in a credit union.  

• Regular or everyday credit unions (“natural person”), the ones where 92 million Americans save and borrow, are well-capitalized and strong (nearly 11% capital to assets).
  
• We’re still actively extending credit, keeping the country’s lending wheels in motion when many other financial institutions have cut back.
• We’re lending responsibly. Credit unions typically hold onto their loans, and do not “originate to distribute,” a practice that ultimately caused so many other financials big problems.
• Deposits at virtually all credit unions are federally insured to $250,000, the same as at FDIC-protected banks and with the same federal guarantee. And, the insurance fund protecting consumer savings (the National Credit Union Share Insurance Fund) is backed by the full faith and credit of the United States.

Some everyday (“regular”) credit unions, as one would expect, are feeling the strain from what is now seen as the worst financial crisis to grip the nation since the Great Depression.

• The steep decline in the economy is having its impact. At year’s end, the delinquency ratio among credit unions was about 1.43% -- well above the typical ratio of about 0.96% in the first seven months of 2008.
• But, especially in hard-hit states like CA, NV, AZ, FL, credit unions are experiencing particular “collateral damage” stemming from the economic crisis in those states (e.g., members with job losses or other changes in their lives related to the economic downturn fall behind on carefully made loans).
• A small number of credit unions have closed or been taken into conservatorship (16 out of 8,300) and there will likely be more. But credit unions overall are in strong shape and will weather this financial storm. There is no problem that can’t be handled by our existing deposit insurance system.
• No one has ever lost a penny of federally insured deposits in a credit union.

The 28 “corporate” credit unions—which are entities that everyday credit unions invest in—deal with large sums of money.  As such they operate in the open securities markets and are being affected by the credit crunch there.

• As The Wall Street Journal pointed out (Jan. 29, page 1), corporate credit unions provide financing, check-clearing and other tasks for regular credit unions. These “wholesale” credit unions are owned by regular credit unions – which are members of the corporates.
• Additionally, corporate credit unions hold mortgage backed securities that generally are still performing and are “higher up the food chain” than those held by Wall Street banks that experienced so many troubles in the fall of ‘08.
• But under fair value accounting rules, these securities have lost value in today’s frozen-up financial markets.
• The majority of these securities give every indication of continuing to pay interest and principal until they mature.
• Further, corporate credit unions are facing keen competition for deposits from an increasing number of other institutions which have received guarantees from the U.S. government, such as through the Troubled Asset Relief Program, or TARP.

The program announced by the National Credit Union Administration, credit unions’ federal regulatory agency, is designed give credit unions – which are members and sole users of the corporates – continued confidence in the wholesale institutions.

• As NCUA has pointed out “the capital position of natural person credit unions remains a constant source of strength of the industry.”
• But, also according to the federal agency, “the corporate credit union system is now facing unprecedented strains on its liquidity and capital due to credit market disruptions and the current economic climate.”
• NCUA’s action is intended to add stability to and strengthen corporate credit unions utilizing a three-pronged approach designed to: maintain liquidity, strengthen capital and restructure the corporate system.
• No taxpayer dollars are being used for the corporates. It is only credit union money paid into the National Credit Union Share Insurance Fund – the insurance fund that is completely funded by credit unions to assist in this type of situation.

Again, credit unions are well-positioned to weather the economic storm.

RESPONSES FOR ANTICIPATED MEMBER QUESTIONS (courtesy of TCUL)

Q. Is my credit union safe?

A. Yes, your credit union is well-capitalized and financially sound.

Q. How about my account?

A. Your account is safe and insured. Your savings are federally insured to at least $250,000 and backed by the full faith and credit of the United States government.  In fact, depending on how you have structured your accounts, you may be insured for much more than $250,000.

Q. Will my credit union still make loans to members?

A. Yes. Your credit union will continue serving members with great loan and deposit products.

Q. Does my credit union own “toxic assets?”

A. No. Your credit union doesn’t hold those types of assets. We are owned by our members; our assets are our deposits and loans with our members. We have not and do not engage in the types of practices that resulted in the trouble on Wall Street. Your credit union, along with the vast majority of credit unions in the country, is financially sound. In fact, according to The Wall Street Journal on January 29, 2009, “credit unions are considered to be among the most conservatively managed financial institutions.”

Only provide if asked…

Q. What did the NCUA do?

A. The NCUA acted to provide additional liquidity to “corporate credit unions,” which are the part of the system which provide investment and liquidity to “natural person credit unions.” This action by NCUA is in keeping with the conservative and cautious nature of the credit union system and is a precautionary move. 

Q. What is a “corporate credit union” and a “natural person credit union?”

A. Simply put, your credit union – where you make deposits and have loans – is a natural person credit union, meaning people belong to it. Corporate credit unions are part of the credit union system – they provide investments and other services to credit unions.

Q. If a corporate credit union is having a problem, will my credit union account be safe?

A.  Yes. Your savings are federally insured to at least $250,000 and backed by the full faith and credit of the United States government.  In fact, depending on how you have structured your accounts, you may be insured for much more than $250,000. Your credit union, like the vast majority in the country, is sound and conservatively managed. In fact credit unions have much higher capital levels (11% on average) than regulators require, and are still making loans to members.